There are many investors out there – two million of them to be specific. However, most of them don’t invest in more than one property. With a pension that merely equates to $31,000 per annum per couple, it’s important to have a sizeable portfolio of more than one investment property to fund a lifestyle with any creature comforts let alone one that you want. We take a look at why people stop at one investment property and how this can be changed.
Tax Office records say that there are 1.944 million property investors in Australia and 72% of those only own one property. This is because more than often people don’t have the knowledge about how much they will need in the future to be able to retire the way they wish. There seems to be a thought that you can only afford to purchase one property. However, with the right advice and comprehensive strategies most people have the capacity to invest in more than they realise.
What can you do to grow your portfolio?
To grow your portfolio, it is essential to engage a professional. This is because, to retire the way you want, you will need a plan with some sophisticated financial modelling. This includes getting the right mix of investment capital and cash flow, figuring out the right property price point, considering different options for name on title, creative debt structuring, and risk management strategies.
Tips for growing your portfolio
Ask questions and get second opinions from professionals other than the financial advisor at the bank.
Financial structures are a key part of growing your portfolio. Banks teach their staff about loan applications, not about ‘strategy’; there are more important things than a competitive interest rate and an ‘approved’ stamp. When our (tertiary qualified) qualified property investment advisors design a strategy, we start by identifying where the capital is (accumulated savings, the family home, equity in other investments) and modelling different leverage scenarios. Sometimes there can be big long-term benefits from paying a one-off mortgage insurance premium. Leverage is a powerful tool if used creatively and responsibly.
Try not to be confronted
One of the most confronting barriers to buying a second property is not realising how much you will realistically need for retirement. It is a scary situation for anyone. You’ve worked hard all of your life to be able to retire the way you want and all of a sudden you realise how much money that will take. However, it is important to remember that once you have a clear and defined number, you can start working towards your goal – a plan with the end in mind. The main thing to remember is that now you have years ahead of you to work toward what you want instead of being confronted with a daunting figure when you retire.
Wherever possible get advice before you purchase your first property
Every investment is an important decision however, getting the right advice before you purchase your property will mean you have a greater chance of investment success. This is because the outcome of the first property has a bearing on the rest of the investment strategy.
Buying your second investment property
It’s important to always have it clear in mind how long you have before you want to stop (or partially stop) working and have calculated the size which your investment portfolio needs to be to fund the lifestyle which you’d like to live. Consideration needs to be given to things like how to free up equity, avoiding giving too much control to one bank, land taxes, appropriate name to buy the next property in, and risk management. Once all of these important decisions are made, generally speaking the sooner a property is bought, the sooner, your money can start working for you.
So, as you can see, when done thoroughly, the big decision to investment involves a series of smaller decisions which all bare great importance and weight on the overall strategy. The good news is that, with the right professional help, investors can probably achieve much more than they realise.
So stop being confronted by the decisions of the future and get informed today.
Contact us today to discuss how to get your investment and retirement plans on track!
About Propertyology Head of Research and REIA Hall of Famer, Simon Pressley
Simon Pressley is a 3-time Australian Buyer’s Agent of the Year, an REIA Hall of Fame Inductee, a tertiary-qualified Property Investment Advisor, and a graduate of Australian Institute of Company Directors. His reputation as a thought-leading property market analyst is unparalleled, including correctly forecasting Hobart’s boom, Sydney-Melbourne’s last downturn, numerous regional star performers, and Australia coming out of COVID with the biggest boom in more than 15-years.